Compliance with pre-arbitration and pre-litigation notice procedures is critical to enforcing contractual rights: English High Court in Ipsos SA v Dentsu Aegis Network Limited

When a party to a contract wishes to sue, the contract may include specific procedures for giving notice to the counterparty in a prescribed way prior to the right to litigate or arbitrate in accordance with the contract becoming available. Recent judicial trends have shown the English court moving towards increased flexibility and reduced formality when construing claim notices. 

Each notification clause will turn on its own wording. Where a contract provides for specific procedures for bringing claims generally, or certain types or classes of claims, parties need to take particular care in adhering to such procedures so that they perfect their entitlement to subsequently commence formal proceedings in accordance with the contract. This came to the fore in the recent English High Court decision in Ipsos SA v Dentsu Aegis Network Limited [2015] EWHC 1171, where the High Court reiterated that a claimant must take considerable care in ensuring it adheres to the precise requirements of the contractual pre-dispute notice requirements prior to commencing a claim. In Ipsos the claimant did not adhere to its notice requirements and was accordingly debarred from bringing formal proceedings. 

The key facts in Ipsos 

In Ipsos, the purchaser acquired from the seller its shares in the Synovate Group (“Synovate”), a global market research agency. The seller provided various warranties to the purchaser under the sale and purchase agreement (“SPA”) which, importantly, contained a two-year limitation period for service of a claim notice regarding any breach of warranty claim. 

After the purchaser had completed its share acquisition, it sent two letters to the seller (approximately a year apart). The first letter notified the seller of certain third party employment claims it had received. The second letter, referring again to those third party claims, was sent to the seller just twelve days before expiration of that two year notification deadline. 

The purchaser contended that the second letter was notification of a breach of warranty claim in accordance with the warranty dispute notification requirements in the SPA. The purchaser ultimately commenced proceedings against the seller for breach of warranty under the SPA in alleging that Synovate had breached certain Brazilian employment laws. The seller applied for the claim to be struck out, or alternatively for summary judgment against the purchaser, on the basis that neither the first or second letters satisfied the contractual notice requirements contained in the SPA for commencing a breach of warranty claim. 

Did the purchaser comply with the contractual notice requirements? English High Court says “No”. 

In the High Court, Mr. Justice Simon found that the second letter delivered by the purchaser failed to satisfy the specific notice requirements set out in the SPA for commencing a breach of warranty claim. The High Court arrived at this conclusion for a number of reasons, including: 

• The second letter did not state that they were warranty claim notices (and indeed, the first letter specifically stated that it was not a warranty claim notice), and did not otherwise make clear that a warranty claim was being asserted against the seller. 
• The High Court rejected the buyer’s contention that the timing of the second letter, being just prior to the expiry of the two-year notification deadline, should have suggested to the reasonable reader that it was understood to be a claim notice in accordance with the SPA. 
• The second letter failed to specify in reasonable detail the matters which gave rise to the warranty claim or the nature of the claim, in the manner required by the SPA language. 

Taking all of those factors into account, the judge held that a reasonable recipient of the letter, with knowledge of the parties’ previous correspondence and the context in which it was written, would not have understood it to be a claim notice in accordance with the SPA. Because the two-year limitation period set out in the SPA for service of a claim notice had since expired, the judge concluded that the purchaser’s warranty claim was time barred and accordingly failed. 

Comment: notice requirements are paramount 

The Ipsos decision emphasises that it is critical for prospective claimants to stringently comply with both the form and substance of contractual notice requirements when giving notice of claims, whether with respect to claims generally, specific warranty or other post-contractual claims or, for example, exercises of put or call options. If notice requirements are not met, the consequences can be serious and irrevocable: as Ipsos demonstrates, the court will not think twice about barring claims in such circumstances. 

Footnotes 

_{1) See, for example, the decision of the House of Lords in Mannai Investment Co v Eagle Star Life Assurance Co [1997] AC 749, where the House developed a principle under which, in certain circumstances, defects in a notice will not invalidate that notice if the reasonable recipient, with knowledge of the factual and contextual background, would not be “perplexed” by the defect.}